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PLDT (TEL) assets after Smart Towers that can be crystallized to help address the triple threat position it is facing

PLDT Inc. (TEL) is under heavy pressure to (1.) invest in fiber broadband and 5G wireless networks and (2.) still reduce leverage and (3.) distributes dividend to shareholders, the “triple threat position.“

No less that the President of the Philippines on its State of the Nation Address had called on TEL and Globe Telecom, Inc. (GLO) to improve their services. The President was telling the telcos that it is just a matter of capital infusion and that the telcos have to look for it to fund service improvements.

As of June 30, 2020 TEL’s debt had increased 22% to 235.3 Billion Pesos from the end of December 31, 2019 of 192.6 Billion Pesos. The already elevated debt level gives TEL less flexibility to raise capital through debts.

Judging by the results of the 1H 2020, cash generations from operations will just be enough to fund capital expenditures of 70 Billion Pesos if TEL will stick to its plan of spending around 70 Billion Pesos for capital expenditures on network and infrastructure improvements this year.

After selling the Smart Towers office building and the land where it is sitting, what else are in the balance sheet of TEL that can be crystallized to raise funds, either for paring down debts or for future dividend distribution?

TEL has investment is MediaQuest PDRs which is being carried in the books at 9.8 Billion Pesos as of end of 1H 2020. The MediaQuest PDRs ultimately provide TEL an enconomic interest in Cignal TV. Cignal TV operates a direct-to-home, or DTH, Pay-TV business under the brand name “Cignal TV”, which is the largest DTH Pay-TV operator in the Philippines. The PLDT Group’s ($TEL) financial investment in PDRs of MediaQuest is part of the PLDT Group’s ($TEL) overall strategy of broadening its distribution platforms and increasing the PLDT Group’s ($TEL) ability to deliver multimedia content to its customers across the PLDT Group’s ($TEL) broadband and mobile networks. Cignal TV is slightly profitable.

Another asset in the balance sheet of TEL is its investments in Voyager Innovations Holdings Pte. Ltd., or VIH. VIH is carried in the books of TEL as of end of 1H 2020 in the amount of 7.1 Billion Pesos. VIH is not profitable.

Another investments of TEL is its investment in Multisys which as of end of 1H 2020 is valued in the books of TEL at 2.4 Billion Pesos. Multisys is a Philippine software
development and IT solutions provider engaged in designing, developing, implementing business system solutions and services covering courseware, webpage development and designing user-defined system programming. Multisys has not turned in a profit for the first half of 2020.

After Multisys , is TEL’s remaining investment in Rocket Internet valued at 2 Billion Pesos in the books of TEL. On September 1, 2020 Rocket Internet announced that it will delist its shares from the Frankfurt and Luxembourg stock exchanges. Rocket Internet will offer 18.57 euros each for the shares, and will repurchase as much as 8.84% of its stock on the exchange through Sept. 15. TEL has not publicly disclosed its response to that announcement with regards to its remaining Rocket Internet shares. Many call TEL’s investment in Rocket Internet a bust.

The following are the links to our previous commentaries on the telcos:

PLDT (TEL) accumulating debt, future cash dividend in grave danger with duopoly gone

PLDT (TEL) sells Smart Towers as it addresses triple threat

$GLO could skyrocket if it scraps dividend to heed DU30 calls for network investments

Disclaimer: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent perspective.  Accuretti Systems Inc. in the course of day to day trading may have own, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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